Antitrust Law Daily Wrap Up, RICO—E.D. Mich.: McCarran-Ferguson Act did not bar insurer’s fraudulent billing claims against rehab clinics, (Dec 19, 2014)

By Linda O’Brien, J.D., LL.M.

The McCarran-Ferguson Act did not bar an automobile insurance company’s RICO claims against a group of affiliated medical facilities and physicians for allegedly conspiring to submit false bills and documentation for payment of services and treatment provided to patients involved in motor vehicle accidents that were medically unnecessary, the federal district court in Detroit has decided (State Farm Mutual Automobile Insurance Company, December 18, 2014, Borman, P.).

State Farm Mutual Automobile Insurance Company filed suit against an affiliated group of rehabilitation facilities, prescribing clinics, physicians, and a diagnostic testing facility, alleging that the group conspired to provide medically unnecessary treatment and submit false documentation for payment of benefits to patients involved in motor vehicle accidents, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). Specifically, State Farm alleged that the owners of the affiliated entities (1) maintained referral relationships with personal injury attorneys who represented patients eligible to obtain benefits under Michigan’s No-Fault Act, (2) steered those patients to the controlled entities, and (3) submitted fraudulent bills to State Farm to obtain payment for services that were either never performed or not medically necessary. The defendants moved to dismiss the RICO claims on basis of reverse preemption of the McCarran-Ferguson Act.

The McCarran-Ferguson Act provides that no federal law shall be construed to invalidate, impair, or supersede any law enacted by a state for the purpose of regulating the business of insurance. The court determined that the application of RICO under the circumstances of the case – an insurer’s challenge to a provider’s allegedly fraudulent billing scheme – did not invalidate, impair, or supersede state insurance laws. The Act as applied would aid or enhance state regulation and not impair any state policy or disturb the state’s administrative regime. Thus, the McCarran-Ferguson Act did not preclude its application.

Furthermore, it was undisputed that the Michigan common law provides a remedy for common law insurance fraud that is separate from the remedies available under the Michigan Insurance Code, in the court’s view. In rejecting the defendants’ argument that the damages available under RICO were punitive in nature and therefore precluded under Michigan law, the court noted that RICO was essentially compensatory in nature and an award under RICO would be remedial – not punitive – designed to remedy economic injury. In this case, State Farm’s RICO claims did not interfere with any state policies or the state’s insurance scheme; instead they enhanced the state’s interest in combating insurance fraud. Thus, the RICO claims were not reverse preempted under the McCarran-Ferguson Act.

The case is No. 14-cv-11700.

Attorneys: Jared T. Heck (Katten Muchin Roseman LLP) for State Farm Mutual Automobile Insurance Co. Larry W. Bennett (Seikaly & Stewart, PC) for Pointe Physicial Therapy, LLC. Michael S. Cafferty (Michael S. Cafferty & Associates) for New Era Physical Therapy, PC, and Medical Evaluations, PC. Jack J. Mazzara (Mazzara Law Firm) for Michigan Visiting Physicians, PC, and Bio-Magnetic Resonance, Inc.

Companies: State Farm Mutual Automobile Insurance Co.; Pointe Physicial Therapy, LLC; New Era Physical Therapy, PC; Medical Evaluations, PC; Michigan Visiting Physicians, PC; Bio-Magnetic Resonance, Inc.

Cases: RICO MichiganNews